In October, the European Central Bank will present the conclusions of the digital euro investigation phase. It has been two years of intensive work in which the ECB has evaluated different design options to respond to the policy objectives to be achieved with the digital euro, those are to reinforce Europe’s strategic autonomy, and to provide a monetary anchor against a potential disappearance of cash in everyday payments. 

This initial phase has shown the complexity of the project and the importance of ensuring the right design. It is essential to avoid by design the potential risks that the digital euro poses to financial stability, limiting the use of the digital euro as a store of value, and ensuring an orderly deployment that avoids any potential abrupt adoption scenarios. Besides, it is necessary to create the conditions for the private sector so that the digital euro contributes to making payments, and ultimately Europe, more competitive. As it would happen with any other means of payment, the digital euro will be adopted only if it provides value for citizens and businesses. At the same time, intermediaries should also play a key role in this new ecosystem, by integrating digital euro payments into people’s day-to-day financial lives, explaining how to use it, solving citizens’ doubts, and offering new services to customers.

From the point of view of future users, the question that immediately arises is what is the added value that the digital euro will bring to citizens in their everyday payments. Although the level of payments development across Europe is not the same, in general European citizens already have a wide variety of available means of payment that they use daily. And we see new solutions appearing every year. It is therefore not obvious how to translate the high-political objectives that the digital euro aims to achieve into concrete benefits that would motivate citizens to use it.

From the payment service providers point of view, the digital euro will inevitably compete with existing private means of payment. It is the aim of the Commission and the ECB to bring optionality to citizens in their payments. The challenge for authorities is then how to:

• Avoid artificially crowding out existing domestic private solutions which are being successfully used, when trying to encourage the adoption of the digital euro; 
• Create the conditions for the private sector to provide digital euro services and to innovate and build new added-value services on top of the digital euro.

The market shows that there are no free of charge services, and when they are free it is because they are being monetised in another way. And the costs for the private sector for first deploying the digital euro, and then to provide services can be very significant. Leveraging on existing payments infrastructures and domestic solutions that are being successful as much as possible would be the most efficient and effective way to distribute the digital euro reducing these costs. However, still there will be a cost for providing these services.

We need to think of the right compensation model that ensures on the one hand that the costs for providing these services for intermediaries are properly covered, and at the same time, that the digital euro competes on an equal footing with other existing private solutions, avoiding the crowdingout effect that would be detrimental for the competitiveness of the sector.

The legislative proposal submitted by the European Commission, which will be discussed extensively by the colegislators in the coming months, opens a new phase for further deepening the design of the digital euro. The ECB will also continue to analyse these issues during the new preparatory phase which is expected to start later this year.

A calm and in-depth analysis of these matters is needed to ensure that, if the digital euro is issued, it will deliver value to citizens, businesses, and intermediaries, and will contribute to a more competitive, efficient and innovative payments market. Otherwise, there might be other possible solutions that could be considered to achieve the policy objectives set for the digital euro.

Finally, in my view there would be value in also exploring the benefits of issuing a CBDC in the wholesale space, which are probably clearer. A wCBDC could offer significant improvements in cross-border transactions in terms of costs, speed, access, and transparency, and could also contribute to the secure development of tokenised financial markets enabling market participants to benefit from the advantages of DLT (such as programmability), while continuing to provide safe settlement in central bank money.